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Out of the corridor: Keynes and the crisis

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  • Axel Leijonhufvud
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    Abstract

    We should learn from Keynes to focus on the macroproblems of our day. Today's problem is the financial crisis and the resulting great recession. Neither the standard Keynesian policies of decades past nor the monetary policy doctrine of recent years provides useful solutions. Dynamic stochastic general equilibrium theory is part of the crisis wreckage, but turning to old or to New Keynesian theory will be of little use. A balance sheet recession requires that policy address the problems in the private sector's capital as well as its income accounts. We need serious theoretical work on problems of system stability using, for example, agent-based methods. Monetary theory needs to develop analysis of processes in which intertemporal budget constraints are violated. Network theory will be useful in that quest. Copyright The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal Cambridge Journal of Economics.

    Volume (Year): 33 (2009)
    Issue (Month): 4 (July)
    Pages: 741-757

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    Handle: RePEc:oup:cambje:v:33:y:2009:i:4:p:741-757

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The ABCT making its presence in the maintream literature
      by Nicolas Cachanosky in Punto de Vista Economico on 2013-09-02 03:10:35
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    Cited by:
    1. William R. White, 2012. "Ultra easy monetary policy and the law of unintended consequences," Globalization and Monetary Policy Institute Working Paper 126, Federal Reserve Bank of Dallas.
    2. Andreas Hoffmann, 2014. "Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets," ICER Working Papers 02-2014, ICER - International Centre for Economic Research.
    3. J. Stephen Ferris, 2010. "Fiscal Policy from a Public Choice Perspective," Carleton Economic Papers 10-10, Carleton University, Department of Economics.
    4. Facchini, François, 2014. "Retour sur la crise et les politiques mises en œuvre : une perspective autrichienne
      [Past and Future of the crisis]
      ," MPRA Paper 52984, University Library of Munich, Germany.
    5. Giancarlo Bertocco, 2011. "Housing bubble and economic theory: is mainstream theory able to explain the crisis?," Economics and Quantitative Methods qf1116, Department of Economics, University of Insubria.
    6. Spahn, Peter, 2013. "Macroeconomic stabilisation and bank lending: A simple workhorse model," FZID Discussion Papers 76-2013, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    7. Kakarot-Handtke, Egmont, 2011. "Unemployment out of nowhere," MPRA Paper 32257, University Library of Munich, Germany, revised 15 Jul 2011.
    8. Giancarlo Bertocco, 2011. "Finance and risk: does finance create risk?," Economics and Quantitative Methods qf1115, Department of Economics, University of Insubria.
    9. Kakarot-Handtke, Egmont, 2011. "Keynes’s missing axioms," MPRA Paper 31179, University Library of Munich, Germany.
    10. William R. White, 2012. "Credit Crises and the Shortcomings of Traditional Policy Responses," OECD Economics Department Working Papers 971, OECD Publishing.
    11. Kakarot-Handtke, Egmont, 2011. "Unemployment out of nowhere – a structural axiomatic analysis of objective determinants," MPRA Paper 32248, University Library of Munich, Germany.
    12. José Luis Machinea, 2011. "Desaceleración o recesión global: los márgenes de la política económica," Business School Working Papers 2011-05, Universidad Torcuato Di Tella.
    13. Fischer, Thomas & Riedler, Jesper, 2013. "Prices, debt and market structure in an agent-based model of the financial market," ZEW Discussion Papers 12-045 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    14. Richard Holt & J. Barkley Rosser & David Colander, 2011. "The Complexity Era in Economics," Review of Political Economy, Taylor & Francis Journals, vol. 23(3), pages 357-369.
    15. Katarina Juselius, 2009. "Time to reject the privileging of economic theory over empirical evidence? A Reply to Lawson (2009)," Discussion Papers 09-16, University of Copenhagen. Department of Economics.
    16. Kakarot-Handtke, Egmont, 2011. "Scrap the lot and start again," MPRA Paper 29812, University Library of Munich, Germany.
    17. Mellár, Tamás, 2010. "Válaszút előtt a makroökonómia?
      [Does macroeconomics face a dilemma?]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 591-611.
    18. Foroni, Ilaria & Agliari, Anna, 2011. "Complex dynamics associated with the appearance/disappearance of invariant closed curves," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(8), pages 1640-1655.
    19. Ioana Negru, 2013. "How reflexive have economists been in the wake of the crisis: ‘the times they are a–changin’?," Working Papers PKWP1306, Post Keynesian Economics Study Group (PKSG).
    20. Thomas Willett, 2010. "Policy Focus: Some lessons for economists from the financial crisis," Indian Growth and Development Review, Emerald Group Publishing, vol. 3(2), pages 186-208, October.

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